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Mellanox Lowers Revenue Outlook - Analyst Blog

Mellanox Technologies Ltd.
(
MLNX
) recently revised down its guidance for the fourth quarter
revenue guidance which ended on December 31, 2012. The fabless
semiconductor company is scheduled to release its fiscal fourth
quarter 2012 results on January 23, 2012.

As per the revised guidance, Mellanox now expects revenue in
the range of $119 million to $121 million, down from previous
projection of $145 million to $150 million. However, the guided
range is significantly higher than the $73 million reported in
the year-ago quarter.

The downward revision was due to weaker-than-expected demand,
sluggish macroeconomic conditions and a certain technical issue
regarding the FDR (Fourteen Data Rate) 56Gb/s InfiniBand cabling.
This is expected to drag down fourth quarter revenue by $20
million.

Currently, the Zacks Consensus revenue estimate is pegged at
$127.0 million, which is slightly higher than the guided range.
However, the estimate is expected to trend to lower following the
revised guidance.

Despite the lowered revenue estimate, Mellanox maintained its
non-GAAP gross margin expectation of 68.5% to 69.5%. Mellanox
also maintained its operating expense outlook, which is expected
to increase 6% to 8% sequentially for the quarter.

For the fiscal 2012, Mellanox expects to report $500 million
in annual revenue for fiscal 2012, below the Zacks Consensus
Estimate of $508 million.

However, Mellanox did not provide any earnings guidance.
Currently the Zacks Consensus Estimate is pegged at 65 cents per
share for the fourth quarter of 2012, which reflects a
significant jump from 17 cents earned in the year-ago
quarter.

We believe that EPS is expected to grow on the back of higher
revenue base and margin expansions. Going forward we believe that
Mellanox will continue to outperform its peers based on strong
demand for InfiniBand products, particularly from the high
performance computing, cloud data centers and web 2.0 markets.
Moreover, the company's expansions in the cloud and enterprise
storage segments are the other positives.

However, sluggish macroeconomic environment, and increasing
competition from its peers may act as headwinds going forward.
Moreover, customer concentration could be another headwind for
the stock. In the first nine months of 2012,
Hewlett-Packard Co.
(
HPQ
),
IBM Corp.
(
IBM
) and Polywell Computers accounted for more than 50.0% of
Mellanox's revenues.

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